Towersharing (Part 3): History of TowerCos

Disclaimer:This article (and the series following) is purely for educational purposes and aims to provide an understanding of the Towersharing Industry, its origins and the TowerCo Model. It is intended for consumption by individuals and/or organizations to gather an intermediate understanding of the dynamics of the Towersharing Sector and how it seeks to add value in the global society. Material presented in this article (and the series following) represents a culmination of information sourced from public sources (properly cited wherever relevant) and my own personal experience. I have (to the best of my knowledge) not utilized nor disseminated data originating from non-public sources and have (to the best of my knowledge) managed to maintain the confidentiality of material and sensitive information available to me as part of my profession. If there is any feedback regarding any aspect of this article with respect to confidentiality, I would highly appreciate if the concerned party reach out to me directly.

?TowerCos first emerged in the US when executives from three American Telecom and Media Corporations (Steve Bernstein Associates, Castle Towers and American Radio) realized the value of harnessing the potential of Tower Assets by selling space to multiple tenants. All three corporations almost simultaneously initiated the process of establishing fully functional TowerCos by either building new towers, purchasing portfolios from corporations or carving out Tower Assets from their respective companies.

Steve Bernstein Associates successfully transitioned from a tower builder to a tower owner, to establish what is now SBA Communications. American Radio carved out its Tower Assets and eventually IPO’d its carveout in 1998 forming what is now American Towers, whereas executives from Castle Pines created a purpose built TowerCo, with backing from a Venture Capital and a Private Equity firm, called Castle Towers. Castle Towers then ventured on to purchasing Tower Assets in the USA and UK markets. One of their most notable acquisitions, at that time, was a platform purchase of a few hundred towers from Crown Communications that resulted in the company being renamed to Crown Castle (as it is today).

These initial transactions were based on the Towersharing Model of “steel and grass”. This meant that these TowerCos would only be responsible for providing the tower structure to place ComCos Active Equipment on (i.e. “steel”) and ground space for the ComCos to install their ground based equipment (i.e. “grass”). Several Value-Added components such as provision of power and maintenance of the equipment was contracted as the responsibility of the ComCos. This “steel and grass” Business Model is widely known as the traditional and most basic model of Towersharing today. There had been certain advancements in this Business Model over the subsequent years.

Eventually when Towersharing had managed to gain traction in the USA, the same TowerCos ventured into introducing the concept into the Central America and Latin America region (known as the “CALA” region). Initially, the “steel and grass” structure (which by then had amassed massive support and appreciation) was replicated across the CALA region, with the same (or similar) contractual terms between the TowerCos and ComCos, which were being implemented in the US. This traditional structure had to be modified into a hybrid structure bearing in mind the regional economics and pressure points of the ComCos operating there.

Between 2010 and 2014, major Tower deals came into play in CALA culminating into a major operational base and presence being enjoyed by TowerCos in the region. As of today, majority of the Tower Assets are under the ownership of TowerCos, of which Brazil and Mexico have the highest penetration.

Next was the turn of Africa (the Sub-Saharan Africa or “SSA”). Africa was and is still to date the land of limitless and boundless potential especially owing to the enormity of the continent. One of the major reasons of transitioning into Africa was the huge opportunity to establish infrastructure that enabled connectivity in the region. This need for expanding connectivity is what led to the establishment of household names in the Tower Industry such as IHS, Helios Towers and Eaton Towers.

However, to fully realize and facilitate the concerns of ComCos in the region (which were mostly MNOs), the traditional “steel and grass” model had to be tweaked. Africa faced the problem of recurring power outages and site access issues. Majority of the tower related OPEX being incurred by the MNOs operating there constituted of fuel expenditure for functioning the generator sets or “gensets” (both Diesel Consumption and transport). This was a cause of major concern for said MNOs.

TowerCos managed to address these concerns and relieve the MNOs of the risk by introducing a modified Tower Sharing Service Agreement (called the Master Service Agreement of “MSA”) that catered to bearing responsibility for optimizing power solutions (by optimizing genset consumption and introduction of back-up batteries) and managing logistics for the power solutions (by optimizing fuel transportation and reducing fuel leakage due to theft).    

Right about the time when SSA was experiencing exponential growth in Towersharing, a parallel effort was also underway in India. The introduction of Towersharing in India would eventually be a further evolution of the concept expanding the horizon of how TowerCos can function across the global landscape. Whereas, the “steel and grass” (or in other words, “Pureplay”) structure was being customized in SSA, a new kind of structure (albeit ownership structure) was being devised in India.

Between 2006-2010 an independent small TowerCo Quippo acquired a small portfolio of c. 1,000 towers from then MNOs Hutch and Spice Telecom. At the same time, MNOs Bharti Airtel, Vodafone and IDEA Cellular created the first TowerCo globally, owned and managed by MNOs. This TowerCo would eventually be named Indus Towers and would be the largest TowerCo in the world with c. 70,000 towers. What marks the creation of Indus Towers as one of the most significant developments in the Towersharing industry was that the said TowerCo was created solely for the purpose of reduction of MNO OPEX by employing multiple tenants on a single tower (making the TowerCo profitable by hosting multiple tenants on a single tower and reducing the per tenant lease fee drastically resulting in reduced OPEX for the MNOs). This move eventually reduced the potential profitability forecasts of the TowerCos operating in the region and resulted in an upsurge of ComCos operating in India (as a result of reduced or zero up-front CAPEX in the Tower Assets by the ComCos).

Between 2010-2012 however, there was a major reshuffling by the Indian Communications Authority that led to cancellation of c. 122 ComCo licenses. This resulted in an oversupply of Tower Assets in the market in contrast to the amount of demand.

In the far east, TowerCos were also coming into effect in Indonesia and Malaysia. With household names such as Tower Bersama (Indonesia), Edotco (Malaysia, a TowerCo arm of the ComCo Axiata) and Protelindo (Indonesia), the concentration of Tower Asset ownership swiftly changed hands from MNOs to these TowerCos. Today, majority of the Tower Assets in this geography are currently under TowerCo ownership.

China also initiated the establishment of TowerCos during the first half of this decade. In 2014, three state-owned ComCos namely, China Mobile, China Unicorn and China Telecom created the first TowerCo in the country called China Tower Corporation ("CTC"). CTC is a TowerCo owned by the state and to this date as more than 1.7 million Tower Assets under its ownership, marking it by far the largest TowerCo in the world.

Europe has always been progressive in adopting efficient, lean and environmentally friendly policies, more so than the other regions combined. We have witnessed it in the past when European Governments initiated their aggressive adoption of clean, efficient and environmentally responsible practices to produce energy (with the implementation of alternative energy production solutions such as the construction of windmills), or the targets set forth by the collective governments of Western Europe to curb CO2 emissions from fossil fuel consuming automobiles (by promoting and subsidizing use of electric vehicles). It is no wonder then that the European continent (and the entities operating within) had devised a method to optimize the Passive Wireless Communications Grid across its landscape.

Towersharing is present in Europe, however, TowerCos are few and scattered across the region. A few prominent TowerCos operating in the European Continent include Cellnex (Southern Europe, Spain and Italy as their primary markets), Deutsche Funkturm (Germany) and First Tower Company (Russia). What makes the European TowerCo landscape unique from the rest of the world is primarily the inclusion of state and MNOs in the industry. For example, European countries were among the first to adopt MNO infrastructure sharing around the globe. This form of sharing (despite the issues arising from direct MNO infrastructure sharing) was the result of industry and state consensus on the benefits of Towersharing for the communications industry. Many states encouraged (and went so far as mandating) Towersharing across their respective geographies leading to MNOs realizing (and weighing) its benefits more than the respective engagement costs. MNOs were quick to carveout their Tower Assets into wholly (or majority) owned subsidiaries and market these towers to other MNOs in a bid to reduce overall operational and financial expenditure in the industry. Progression in sharing today has reached a point where ComCos (MNOs and Broadcast Companies alike) have embarked on Network and Spectrum sharing (sharing Active Equipments) reducing the need for duplication of Active Equipment installed on the towers.

The aforementioned view of the European Communications Landscape to optimize the Network Grid and Infrastructure (thereby reducing costs of operation) meant that there was limited profitability for Independent TowerCos to benefit from. Therefore, unlike other geographies, interest from TowerCos (and their financial backers) was limited in the region. However, from 2013 onwards, there has been a spike in TowerCo related activity in the region, boasting high valuations that may expose Europe to a higher TowerCo activity.

Summing it up:

As of today, the existence of Towersharing (and subsequently TowerCos) spans globally, touching (almost) all the major regions. The only major region untapped by TowerCos is the Middle East and North Africa (MENA). However, TowerCo activity is expected to pick up in the near future. An illustration of areas, where Towersharing is prevalent today is as follows.

While we are on the subject of TowerCos, it is prudent to mention the largest TowerCos that operate across the globe. Some of these TowerCos concentrate mostly in their country of origin, whereas the rest have diversified platforms that span across different regions. The following illustration highlights the top 10 Global TowerCos (in terms of Tower Assets) and their respective portfolio sizes.

In the next section we are going to dive into the TowerCo Operating Model. We will be visiting the assets that are core to functioning of a Tower Asset, and the mechanism that enhances (and attracts) the value of the TowerCo model. We will also be reviewing (in moderate detail), the different TowerCo models and the responsibilities that a TowerCo undertakes in each category.

Sources:

This article has been sourced (in various places) from multiple pieces of literature. Information presented in the illustrations has been compiled mainly from Towerxchange.com and involve some data crunching (conducted by myself). Since most of the TowerCos are under private ownership globally, data is available to the extent, it is provided by Governments and/or TowerCos. As a result, certain approximations have been made to calculate metrics such as Tower Assets in countries/regions, Tower Assets under TowerCo ownership and the resulting TowerCo penetration in each region. It is likely that the data may not match completely across different sources. Following are the key links utilized to produce this article.

The history of the tower industry, and a comparison of the towerco business model - Kieron Osmotherly, Towerxchange

Rise of the Tower Business - AT Kearney

Towerxchange's introduction to the global tower industry - Kieron Osmotherly, Towerxchange

Towerxchange's analysis of the independent tower market in Africa and the Middle East - Laura Graves, Towerxchange

Towerxchange's analysis of the independent tower market in Europe - Frances Rose, Towerxchange

Towerxchange's analysis of the independent tower market in CALA - Arianna Neri, Towerxchange

Towerxchange's analysis of the independent tower market in Asia - Christie Liu, Towerxchange

An introduction to the unique tower industry in Europe - Towerxchange

Towerxchange now tracks 275 towercos and infracos who between them own 68.7% of the world's 4.3mn towers and rooftops - Kieron Osmotherly, Towerxchange